The uncertainty generated by Brexit infiltrates the real estate sector from the wider economy. Property, and the housing market in particular, are sensitive to broader economic trends. Major housebuilders saw their shares fall sharply on the day of the referendum and none have fully recovered. Many global banks are known to be in the advanced stages of planning to move some operations to Paris or other EU member country, raising questions about the effect on the prime London office market.
Transparency and anti-corruption were key government themes in 2016, as evidenced by the anti-corruption summit held in London in May. Property has long been regarded as a soft-target for cleaning funds, and with recent years seeing ever increasing foreign investment in the UK real estate market, it is no surprise that the government is looking hard at widening the requirements for disclosure of beneficial ownership to land.
2017 property related highlights to look out for include:
- The possible introduction of a requirement to disclose the beneficial ownership of overseas companies that own land in England and Wales. From April 2016 unlisted UK companies have been required to disclose individuals with significant control over the company. Extending disclosure to overseas companies is a logical next step and accords with the government’s anti-corruption agenda.
- The effect of Brexit and Article 50 being triggered by the end of March 2017. This is around the time of the March quarter day, a rent review date for some tenants.
- Landlords’ response to the phased withdrawal of mortgage interest relief and the recent changes to stamp duty land tax. There are likely to be further attempts to avoid the buy-to-let tax increases through the formation of limited companies and increased rents in order to negate higher tax rates on their rental income.
- New rateable values (used by local councils to calculate business rates) were released on 30 September 2016, based on the rental value of properties on 1 April 2015. These will be used to calculate business rate bills from 1 April 2017. See Valuation Office Agency and business rates.
- In the 2016 Autumn Statement the government announced that the annual chargeable amount for the annual tax on enveloped dwellings (ATED) will rise in line with inflation for the 2017-18 chargeable period (which begins on 1 April 2017).
- From April 2017, UK tax resident individuals will be entitled to a £1,000 property income allowance. If an individual’s property income falls below this threshold there will be no requirement to declare the income for tax purposes.
- The tax treatment of loan interest in relation to residential property is changing. Starting in April 2017, higher rate tax relief on finance costs paid by individual buy-to-let landlords (and partnerships of individuals that are landlords) will be gradually withdrawn. Instead of treating the interest as a deduction in the computation of net property income, a landlord will claim basic rate relief as a reduction of his tax liability.